Parcel delivery company FedEx Corp. targets more than $4 billion in cost savings in the coming months. But after investors pummeled the stock in September, they catapulted it higher in after-hours trading on Thursday, as efforts to cut costs and keep prices higher began to make their way into the financial sector despite continued weakness in the demand for ships.
Chief Executive Raj Subramaniam said late Thursday night during the company’s third-quarter earnings call that FedEx
had saved $1.2 billion year over year in that quarter. He also signaled more restraint down the road – possibly at the expense of staff.
After announcing last month that FedEx would cut its executive positions by 10%, Subramaniam said the company “will continue to aggressively manage its workforce.” He expected the U.S. workforce to be down 25,000 people by the end of the fiscal year, which would end at the end of May. FedEx plans to hold an “update event” on April 5 on its cost-cutting campaign.
During the call on Thursday, executives said they would reduce flight hours and other costs and park or phase out more jets. Chief Customer Officer Brie Carere said the company was beginning to see “some moderation” in a tougher demand environment characterized by declining package volumes and sales.
Services in Europe improved, while business in Asia remained uneven. At FedEx Ground, FedEx’s ground shipping business in the US and Canada, results were supported by an 11% increase in revenue per package, along with cost savings. Carere said FedEx got more for “getting more for peak surcharges,” or delivery charges used to offset fluctuating fuel costs.
Shares were up 11.4% after hours on Thursday.
FedEx reported net income of $771 million, or $3.05 per share, for the fiscal third quarter, compared to $1.11 billion, or $4.20 per share, in the same quarter last year. Revenue fell from $23.6 billion in the same quarter last year to $22.2 billion.
Adjusted for “business optimization” and other costs, FedEx earned $3.41 per share, compared to $4.59 per share in the prior year. Analysts polled by FactSet forecast adjusted earnings per share of $2.71 on revenue of $22.72 billion.
For the full year, FedEx said it expected earnings per share of $14.60 to $15.20, up from a previous forecast.
“We have continued to urgently improve efficiency, and our cost measures are taking effect, improving the outlook for the current fiscal year,” Subramaniam said in the FedEx press release issued earlier Thursday afternoon.
FedEx has increased shipping costs and halted air and ground shipments following weaker demand for e-commerce and deliveries, following huge demand during pandemic lockdowns.
However, those efforts have encouraged analysts. Stifel Nicolaus analyst Bruce Chan said in a research note Wednesday that FedEx’s cost-cutting efforts have created an “attractive investment opportunity at the current, heavily discounted valuation.” Still, he noted that a shaky economy brought “material risks” to the company.
Stephens analyst Jack Atkins was upbeat about FedEx’s results in a note late Thursday.
“While we believe FDX has been largely a consensus hedge fund in recent months and a solid quarter was expected, we believe the size of the beat and the upward revision to the outlook should translate into meaningful outperformance tomorrow,” he said.
Shares of FedEx are down 12.4% over the past 12 months. For comparison, the S&P 500 index
decreased by 10% during that period.